Unstoppable Momentum in Vietnam Stock Market, Investment Strategies for the Second Half of the Year

[Image source=EPA Yonhap News]

[Asia Economy Reporter Song Hwajeong] As the Vietnamese stock market surpasses the 1300-point mark and continues its unstoppable upward trend, attention is turning to investment strategies for the second half of the year. Promising sectors for the Vietnamese stock market in the latter half include securities and materials.

According to Korea Investment & Securities on the 12th, the Vietnam VN Index has risen 20.3% year-to-date. In particular, it showed strong gains in May, breaking through and settling above the 1300-point level. So-yeon Lee, a researcher at Korea Investment & Securities, analyzed, "Following the conclusion of the 13th National Congress, Vietnam's largest political event, economic normalization progressed rapidly, attracting investor interest and leading to an unprecedented bull market."

Major trading partners, especially the US and Europe, saw a revival in consumer sentiment, strongly driving an export-led economic recovery. Cumulative exports through May increased by 30.7% year-on-year, and imports rose by 36.4%. Notably, exports from foreign direct investment (FDI) companies, which began relocating production bases to Vietnam after the 2018 US-China trade dispute, became visible. Lee explained, "The share of FDI companies in total exports has increased to 74%," adding, "The positive momentum in export conditions spread across overall production activities, with cumulative industrial production through May rising 9.9% year-on-year." Unlike other emerging countries, stable consumer price levels and the base effect from COVID-19 contributed to cumulative retail sales increasing by 7.6% year-on-year through May. The first-quarter economic growth rate was 4.5%, driven by rapid growth in industry and construction sectors.

Following the breakthrough of the 1200-point level in April and the 1300-point level in May, concerns about the steep rise have emerged among investors, but analysis suggests there is still room for further gains. Lee stated, "With the focus of fundamental improvements shifting to the government and private sectors in the second half, faster profit improvements of listed companies, still relatively low valuation levels compared to neighboring countries, and abundant liquidity combined with a Vietnam version of the 'Donghak Ant Movement' support the expectation of further rises in the VN Index." Korea Investment & Securities projects the VN Index's expected range for the second half to be between 1100 and 1500 points.

The VN Index's 12-month forward earnings per share (EPS) has risen 18.6% since the beginning of the year. Since the export-driven economic improvement led by FDI companies was the main driver of fundamental improvements in the first half, the impact on profit improvements of the VN Index, which has a large proportion of domestic demand-related sectors, was limited. Lee noted, "Although strengthened quarantine measures in May may temporarily slow profit improvements, considering the government's active fiscal policies and accelerating domestic demand recovery, the second half is expected to be more positive in terms of profit improvements for listed companies."

Despite the strong upward trend, the VN Index's 12-month forward price-to-earnings ratio (PER) stands at 14.8 times. When the VN Index settled at the 1200-point level in April 2018, the 12-month forward PER was 20.2 times. Lee explained, "Compared to neighboring countries such as India, Thailand, and Indonesia, the valuation is not considered burdensome," adding, "It is a price level to consider investing rather than to discuss overheating."

The Vietnam version of the Donghak Ant Movement is expected to continue defending the VN Index in the second half. The number of new accounts opened by local individual investors, which slowed in February, has increased again to reach an all-time high. Lee said, "The benchmark interest rate, which was 4.25% in 2019, has now fallen to 2.50%. Entering an unprecedented low-interest-rate era in Vietnam, market liquidity has become abundant, and local individual investors have started to show interest in stocks," adding, "Since financial products are not diverse and there are no alternatives other than real estate, the enthusiasm of local individual investors to participate in the stock market is expected to continue in the second half."

Promising sectors for the second half include securities and materials. The securities sector is expected to benefit from increased brokerage and margin interest income due to the expanded participation of local individual investors in the stock market, while the materials sector is expected to see increased demand for steel and cement due to the resumption of construction projects within Vietnam.

This content was produced with the assistance of AI translation services.